Bernie Sanders' Medicare-For-All Plan, Part II: How Much Could It Save on Drugs?

“The United States currently spends $3 trillion on health care each year—nearly $10,000 per person. …This plan has been estimated to save the American people and businesses over $6 trillion over the next decade.” Bernie Sanders’ Medicare-For-All Plan

Based on the above quote, Bernie Sanders’ Medicare-for-all Plan predicts it will reduce healthcare spending by around 20% over the next 10 years (6 divided by 30). However, his figures for current spending are not accurate. The US population is almost 330 million and, per the Centers for Medicare and Medicaid Services (CMS), US healthcare spending was $10,739 per capita in 2017. That makes total healthcare spending a bit over $3.5 billion, assuming current population and last year’s level of spending. To update spending to 2018, I’ll use a different calculation: US GDP is currently close to $21 trillion and healthcare spending is running at about 18% of GDP. Do the math and we’ve got over $3.7 trillion in US healthcare spending in 2018. For Bernie to show his Plan could indeed save 20% in healthcare spending over the next ten years, he would have to come up with average savings of around $740 billion per year (assuming no inflation, for simplicity’s sake).

According to the CMS, the US spent $333.4 billion on prescription drugs in 2017 – almost 10% of overall healthcare spending. That’s a bit less than $1000 per capita. How does that compare to what other developed countries pay for drugs? Here’s a nice chart to give us some clues:

No surprise, at annual spending of around $1000 per capita, the US clearly pays much more for drugs than other developed countries. The closest in spending are Switzerland ($783), Germany ($686) and Canada ($669). As is well known, other developed countries spend less on drugs because they’re able to negotiate lower prices - thanks to their governments’ negotiating power. Couldn’t the US just do the same and get our prices down to, say, what Germany pays?

Sure we could get a better deal on drugs, but it wouldn’t be that much of a better deal. For one thing, Americans subsidize lower drug prices in other countries: we pay more because they pay less. Even if a centralized authority negotiated down the price of drugs in the US, we couldn’t go as low as the those other countries unless they paid a lot more. Plus, the pharmaceutical companies need to continue investing in R&D - which is risky, time-consuming and incredibly expensive. American consumers have been paying for that investment, much more so than the Europeans.

We want the pharma wolf to be healthy - not fat and not lean. Robust enough to survive inevitable dips in revenue. So how much could the US cut drug prices without undermining ongoing innovation in the industry? I have no idea, but for the sake of argument, I’ll guess $200 per capita - putting us in Switzerland’s league. Assuming a US population of 330 million, that would save about $66 billion a year - or a little less than 2% of what the US is currently spending on healthcare. In other words, less than the inflation rate for healthcare spending and nowhere near what Bernie Sanders’ Medicare-for-all Plan needs to cut spending by an average of $740 billion a year.